CFPB Considers New Disclosures for Overdraft Coverage
On the back of reports that Americans spent $15 billion last year in bank overdraft fees, the Consumer Financial Protection Bureau (CFPB) is mulling new standard disclosure forms for banks that allow customers to opt-in to overdraft protection. In addressing the new forms, CFPB Director Richard Cordray said overdraft fees were a “very expensive way to cover a small cash shortfall.” Industry analysis agrees with the agency leader.
Overdraft fees, usually in the neighborhood of $34 per transaction, function as a short term loan from banks to account holders to cover a purchase or payment the customer would not have had the money to pay. As a previous CFPB study showed, the annual percentage rate for borrowing $24 with a $34 overdraft fee is around 17,000%. In a survey by Pew Charitable Trusts, 68% of respondents would prefer that their banks simply deny the transaction, instead of incurring an overdraft fee. Further, 28% of those surveyed actually closed their checking account due to overdraft fees, with 52% complaining that they never even signed up for the service and only learned about it after being assessed a fee. The CFPB’s proposed disclosure forms could go far in helping bank customers understand the potential perils of overdraft coverage.